Thats what makes Ken Adams the unmatched authority on clearer contract language. Ch. This can occur through a merger, consolidation or acquisition. The Venture Alley is edited by Trent Dykes and Andrew Ledbetter, corporate and securities lawyers at DLA Piper. 8, 2013), the Delaware Court of Chancery held that a reverse triangular merger does not result in an assignment of the assets of the surviving entity by operation of law. Instead of owning certain assets and related liabilities, the acquiror owns the entire selling company. Get the latest views and developments in the private equity world from the Global Private Equity Watch team at Weil. As you continue with due diligence review, you may find that assignment provisions offer greater variety beyond the factors discussed in this blog post. For example, a comprehensive anti-assignment clause might state: Party X shall not assign this Agreement in whole or in part without Party Ys prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. 370 King Street WestBox 67, Suite 500Toronto, OntarioM5V 1J9 Canada, Copyright 2023 Kira Inc. All Rights Reserved. On the other hand, I find Meso's arguments as to why language that prohibits "assignments by operation of law or otherwise" should be construed to encompass reverse triangular mergers unpersuasive and its related construction of Section 5.08 to be unreasonable. Language involving by operation of law, seems a bit specialist for a confidentiality agreement. In either case, this illustrates the importance of clear drafting in contracts, and the need for experienced transaction counsel to be involved early in the deal structuring process so that issues like anti . Based on 28 documents. Assignment is a legal term whereby an individual, the "assignor," transfers rights, property, or other benefits to another known as the " assignee .". Printed on Mar 01, 2023 from Global Private Equity Watch, Testing Your Fluency in the Secret Language of Choice-of-Law/Forum-Selection Clauses, SEC Proposes New Investment Adviser Safeguarding Rule to Enhance Protections of Advisory Client Assets, Indeed, the stock purchase agreement pursuant to which the stockholders of the selling party purported to carve out the Conditional Payment provided that the selling party would in fact be obligated to pay over to [the stockholders] such payments within five Business Days after receipt thereof.. This is why reviewing contracts for assignment clauses is so critical. For all other contracts, parties may want an anti-assignment clause that allows them the opportunity to review and understand the impact of an assignment (or change of control) before deciding whether to continue or terminate the relationship. In an asset purchase, the acquiror purchases certain enumerated assets and liabilities of the target in exchange for the cash, the acquirors stock, or other consideration. In an asset purchase transaction, the acquiror is only responsible for the assets and liabilities specifically enumerated in the purchase agreement. Transfers by operation of law are generally considered involuntary transfers. Super. No. While the amalgamation was a creature of Canadian law, the original acquisition agreement containing the anti-assignment clause was governed by Delaware law. As the obligations owed to the plaintiff's insured by the defendant were transferred by operation of law, through merger and not by assignment, the court found that the contract was valid and enforceable. Once you create your profile, you will be able to: In a reverse triangular merger, simple anti-assignment clauses generally are not triggered because, as a matter of law, no assignment of the contract has occurred (the target company survives and is the same legal entity as the original contracting party). For purposes of this paragraph, the term "existing approval" shall include any permit, site assignment, plan approval, condition of operation, or any other applicable order or rule governing the operations of a landfill issued or granted by a municipality, the department, or any other agency of the commonwealth, or for which an application . A .mass.gov website belongs to an official government organization in Massachusetts. Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. In an earlier decision, Coeur Mining, Inc. v. Compania Minera Pangea, S.A. de C.V., 2019 WL 3976078 (Del. Hundreds ofDrafting Clearer Contractspresentations around the world. Someone who knows this law better than me might be able to comment on whether that would include, for example, a lease to either real property or capital equipment. Ch. The general rule is that change of control of a corporate entity is not an assignment by operation of law, and therefore does not violate a basic anti-assignment provision. 3.05 Enforceability of Anti-Assignment Clauses [1] Prohibiting the Assignment of the Contract vs. The reference to the surviving or disappearing entity covers both direct mergers, triangular mergers, and reverse triangular mergers. Massachusetts: Commonwealth v. Power, 420 Mass. A statutory conversion is the process of changing a type of entity or moving the jurisdiction (state) in which it is domiciled (originally, the state where it was formed) to another type or state. Landlordswishing to restrict change of control of a tenant entity, however,shouldhave clearanti-assignment provisions in their leases thatexpressly restrict such transactionsand characterize such changes of control as assignments. The Tenant seeking to enforce its lease has the burden of proving that the new owner was aware of the lease before taking title to the property. Notably, the anti-assignment provision prevented assignment "by operation of law or otherwise" by any of the parties without prior consent from the others. Accordingly, it is important that the parties identify and address comprehensive anti-assignment clauses early in the process particularly where the contracts to be acquired make up a large portion of a target companys value. App. Nonetheless, " [w]hen an anti-assignment clause includes language referencing an assignment 'by operation of law,' Delaware courts generally agree that the clause applies to mergers in which the contracting company is not the surviving entity.". So, when the Conditional Payment came due, the selling partys former stockholders, rather than the selling party, sued to collect the Conditional Payment when it was not forthcoming from the buyer. I think its helpful to distinguish the issue of volition (voluntary or or by court order) from the mechanism of assignment (by contract or something else). Aug. 22, 2019), the court held that the selling partys former stockholders had no standing to claim the Conditional Payment because the only person entitled to that Conditional Payment was the selling party itself, and there really is no such thing as carving out assets of an entity in favor the entitys stockholders selling the stock of that entity, without the entity itself assigning (by way of a dividend) those assets to its stockholders. And, of course, if an assignment had occurred it was prohibited by the anti-assignment provision in the agreement creating the Conditional Payment Obligation. Create your own smart fields to find specific data points using our no-code machine learning tool, Adaptive Workflows company's contracts that restrict an "assignment by operation of law." Importantly, it also reverses an April 2011 ruling, 2011 WL 1348438 (Del. ASSIGNMENT DEFINITION Assignment is the transfer by an obligee (assignor) of some or all of Few things are more fundamental to M&A due diligence than determining whether any of the material contracts to which the target is a party require a counterpartys consent as a condition to the proposed acquisition. Accordingly, acquirors frequently require target companies to obtain third party consent as a matter of risk allocation and to create certainty that important contracts will remain in place after the merger. It appears that the requirements for triggering the obligation to make the Conditional Payment were satisfied, but because of some transactions undertaken by the selling party, and the impact of an anti-assignment clause in the acquisition agreement, the buyer claimed that the person actually asserting entitlement to that Conditional Payment was not so entitled (indeed, no one was because the selling party had ceased to exist). An inclusion could be negotiated by the parties to broaden the anti-assignment clause and to ensure that an assignment occurring by operation of law requires counterparty approval: [Party A] agrees that it will not assign, sublet or otherwise transfer its rights hereunder, either voluntarily or by operations of law, without the prior written consent of [Party B]. An inclusion could be negotiated by the parties to broaden the anti-assignment clause and to ensure that an assignment occurring by . license rights by PPG Industries, Inc. to Permaglass, Inc. 96 Using an If you have an issue that deals with the assignment of a contract, the Katz Law Group can help you enforce your rights and protect the interests of your business. 11-2-210(4) and Restatement (Second) of Contracts 322(1)). View answer Correct answer: (D) by the death of a party to a contract. An official website of the Commonwealth of Massachusetts Here's how you know. I am a corporate and securities attorney who represents emerging growth companies and the investors who invest in such companies, and am the Chair of the Northwest Emerging Growth and Venture Capital Practice for DLA Piper. Any change in control of Party X resulting from a merger, consolidation, stock transfer or asset sale shall be deemed an assignment or transfer for purposes of this Agreement that requires Party Ys prior written consent. These provisions often deem a change of control to be a transfer which triggers the landlord's consent rights in the same way that would apply to an assignment of the lease, for example. Superior Court Monthly Judicial Assignments; Massachusetts Appeals Court . Cir. In a direct stock purchase, the acquiror purchases all the outstanding shares of the target directly from its stockholders. For over two decades now, the law in Connecticut with regards to antiassignment provisions in commercial leases has been that they will be found valid so long as the landlord's discretion to withhold consent was carried out in good faith. And that determination is significantly influenced by the specific language set forth in the contracts anti-assignment/change of control provision, as well as the form the proposed acquisition takesi.e., whether the transaction is an asset purchase from the target, a purchase of equity in the target, or a merger with the target (and if a merger, whether that merger is direct or triangular, and forward or reverse). Aug. 22, 2019), the court held that the selling partys former stockholders had no standing to claim the Conditional Payment because the only person entitled to that Conditional Payment was the selling party itself, and there really is no such thing as carving out assets of an entity in favor the entitys stockholders selling the stock of that entity, without the entity itself assigning (by way of a dividend) those assets to its stockholders. In Meso Scale Diagnostics, LLC v.Roche Diagnostics GMBH, the Delaware Court of Chancery confirmed that a reverse triangular merger did not result in an assignment by operation of law. Would a conversion constitute an assignment by operation of law under such a provision? Under this structure, the subsidiary obtains all of the target companys assets and liabilities by operation of law. Hes author ofA Manual of Style for Contract Drafting, and he offers online and in-person training around the world. The assignment is against the law. An inclusion could be negotiated by the parties to broaden the anti-assignment clause and to ensure that an assignment occurring by . Lowndes var today = new Date(); var yyyy = today.getFullYear();document.write(yyyy + " "); | Attorney Advertising, Copyright var today = new Date(); var yyyy = today.getFullYear();document.write(yyyy + " "); JD Supra, LLC. However, there is considerable variability in . 8 MIN READ. So, your valuable lease might end up being held by a much less creditworthy entity. Thus, the effect of the anti-assignment clause and its applicability to the amalgamation resulted in the buyer having no obligation for the payment of the Conditional Payment to anyone. Operation of Law means rights or duties that are cast upon a party by the law, without any act or agreement on the part of the individual including, but not limited to, an assignment for the benefit of creditors, a divorce, or a bankruptcy. 30 September 202123 June 2011 | Ken Adams, In Meso Scale Diagnostics, LLC v. Roche DiagnosticsGMBH (go here for a PDF copy), the Delaware Court of Chancery held that its not clear whether for purposes of a no-assignment provision a reverse triangular merger constitutes an assignment by operation of law. (A reverse triangular merger is when Sub merges into Target. It appears that the requirements for triggering the obligation to make the Conditional Payment were satisfied, but because of some transactions undertaken by the selling party, and the impact of an anti-assignment clause in the acquisition agreement, the buyer claimed that the person actually asserting entitlement to that Conditional Payment was not so entitled (indeed, no one was because the selling party had ceased to exist). There was some confusing language that followed the clear prohibition on assignments by operation of law, but the court was unpersuaded that this created an ambiguity. Although the Meso Scale Diagnostics decision confirms, at least under Delaware law, the long . However, contract-by-contract due diligence is required to identify any contracts that contain comprehensive anti-assignment language that would be triggered by the change of control that occurs upon consummation of a stock sale and contracts that may be considered personal under applicable law. If an anti-assignment clause doesnt exclude change of control transactions, a counterparty might materially affect a strategic transaction through delay and/or refusal of consent. My late partner and mentor Tom Arnold was of the school of thought that contracts per se are historical facts and can never be terminated only specific rights and duties can be terminated. 2d 109, 113-114 (Cal. Citizens brought this action for a declaration that it . Like a reverse triangular merger, a direct stock purchase generally does not trigger a simple anti-assignment provision because the assets are not conveyed to a different entity. Ch. And that determination is significantly influenced by the specific language set forth in the contracts anti-assignment/change of control provision, as well as the form the proposed acquisition takesi.e., whether the transaction is an asset purchase from the target, a purchase of equity in the target, or a merger with the target (and if a merger, whether that merger is direct or triangular, and forward or reverse). Importantly,the rule is different if the tenant entity does not survive the transaction. Koncisions confidentiality-agreement template uses a bare-bones no-assignment provision that doesnt get into by-operation-of-law territory, so heres a more detailed version that Ive just come up with: Without the prior written consent of the other party, neither party may voluntarily or by court order (1)assign any of its rights under this agreement, whether by contract or by merger (whether that party is the surviving or disappearing entity), consolidation, dissolution, or otherwise, or (2)delegate any of its obligations under this agreement or its performance in satisfaction of any conditions to any obligations of the other party under this agreement. The first, which we will call simple anti-assignment clauses, simply prohibit the contractual right from being assigned without the consent of the other party to the contract. [2] Ive never been 100% comfortable with the concept of terminating the Agreement. Compania Minera Pangea, S.A. de C.V., the Court's conclusion that a Canadian amalgamation had the same legal effect as a Delaware merger resulted in a dismissal of the plaintiff's claim for relief. In a forward triangular merger, the acquiring entity forms a subsidiary corporation and the target corporation merges directly with and into the newly created subsidiary. Simple anti-assignment clauses are generally not triggered in a forward triangular merger because the rights are vested, and not assigned, by operation of law. To address unintended consequences that force an unwanted assignment upon a landlord, the assignment language should perhaps include language that prohibits assignments by operation of law . The contents of this website may contain attorney advertising under the laws of various states. 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